Q3 2019 Earnings Call
[noise].
Ladies and gentlemen, thank you for standing by for Cigna's third quarter 2019 results review.
Just time up how they're starting to listen only mode. We will conduct a question and answer session. Later during the conference and review procedures on how to enter Q to ask questions at that time, if he should require assistance during the call. Please press star zero on your Touchtone phone.
As a reminder, ladies and gentlemen, this conference, including the Q1 day session is being recorded.
Well begin by turning the conference over to Mr. will Mcdowell. Please go ahead Mr. Macau.
Good morning, everyone and thanks for joining todays call I am will Mcdowell, Vice President of Investor Relations with me this morning, or David Cordani, Our President and Chief Executive Officer, and Eric Palmer, Cygnus, Chief Financial Officer.
And our remarks today, David It Eric will cover a number of topics, including Cigna's third quarter 2019 financial results as well as an update on our financial outlook for 2019.
As noted in our earnings release, when describing our financial results signaling uses certain financial measures adjusted income from operations and adjusted revenues, which are not determined in accordance with accounting principles generally accepted in the United States otherwise known as gap.
A reconciliation of these measures to the most directly comparable GAAP measures shareholders net income and total revenues respectively is contained in today's earnings release, which is posted in the Investor Relations section of Cigna Dotcom.
We used the term labeled adjusted income from operations and earnings per share on the same basis as our principal measures our financial performance.
I would remind you that as previously disclosed we exclude contributions from transitioning clients from adjusted income from operations and adjusted revenues.
In our remarks today, we will be making some forward looking statements, including statements regarding our outlook for 2019 and future performance.
These statements are subjects subject to risks and uncertainties that could cause actual results to differ materially from our current expectations I.
A description of these risks and uncertainties is contained in the cautionary note today's earnings release and in our most recent reports filed with the FCC.
Before turning the call over to David I will cover a few items pertaining to our financial results and disclosures.
Regarding our results in the third quarter, we recorded an after tax special item charge of $88 million or 24 cents per share for integration and transaction related costs.
We also recorded especially the benefit of $23 million after tax or six cents per share for the favorable resolution of a litigation matter I.
As described in today's earnings release special items are excluded from adjusted income from operations in our discussion on financial results.
Please note that consistent with past practice, when we make perspective comments regarding financial performance, including our full year 2019 outlook. We will do so on a basis that excludes the impact of any future share repurchases or additional prior development of medical costs with that I will turn the call over to David.
Thanks, well good morning, everyone and thank you for joining our call today I'll highlight cigna's strong third quarter financial results reflect continued momentum across our businesses, including strong earnings growth in our health services business.
Hi, let howard diverse business portfolio and unique capabilities position us to deliver sustained growth in 2019 and over the long term as we continue to serve the needs of employers health plans government clients in individual customers.
Well also sure initial thoughts on how we will drive strong growth in 2020 has remained on track to deliver our 2021 EPS target of 20 to $21 per share and cash flow from operations of at least $8 billion.
Turning to our third quarter results, we again delivered strong performance across our businesses led by health services and integrated medical.
Signets consolidated adjusted revenue for the quarter was $35.8 billion and we grew earnings to $1.7 billion.
These results reflect strong retention and continued expansion of customer relationships.
And significant ongoing operating cash flow generation, which fueled our strategic capital deployment.
In our health services segment, we again delivered significant customer and revenue growth and as expected attractive year over year earnings growth for the quarter.
Our performance into the greater medical was highlighted by customer growth the expansion of relationships and ongoing differentiate it medical cost management.
Our third quarter results give us confidence that we will achieve our increased 2019 outlook for revenue earnings and EPS.
With expected EPS growth of 18% to 20% over cigna's strong 2018 performance.
As a results continue to demonstrate our unique configuration of assets enables us to meet the diversity to the marketplace, which in turn positions us to deliver strong sustained financial performance for our shareholders.
When you consider today's marketplace needs, we continue to confront in affordability challenge in health care environment, where far too often outcomes are sub optimal.
Two frequently individuals experience issues, such as over diagnosis inconsistent care coordination and avoidable Hospital Readmissions just to name a few examples.
All of this results in higher costs and missed opportunities for health improvement.
At Cigna, we have broad capabilities needed to address these issues and to make the overall health care experience, a better and more seamless one for those we serve.
Our combination of assets brings together the best in medical pharmacy, and behavioral health to ensure high quality coordinated care is delivered when and where our customers need it whether at work at home or on the go.
Through our capabilities and actions were able to keep healthy people healthy.
We address risk factors for the held the at risk and we coordinate the need to care for chronically ill individuals.
All of this positions us to drive affordability and better predictability, one customer and one patient at the time.
Because of our approach resonates so well in the marketplace, we were able to generate attractive sustained long term performance, including attractive operating cash flows.
This resulted in significant financial flexibility, which is a key strategic asset that supports continued strong performance and long term growth in a highly disruptive environment.
Our sustained financial performance is also fueled by our for growth platforms Health services.
Commercial employer.
Government and international.
We were able to drive attractive growth across each of these bids is by effectively leveraging our collective capabilities and coordinating or service offerings to meet the needs of those we serve around the world.
For example in health services, we consistently demonstrate deep expertise in coordinated pharmacy services.
And unique innovations and clinical programs, resulting in leading pharmacy trend performance for the benefit of our employer health plan and government clients.
Collectively these continued to drive exceptional customer in client satisfaction.
Resulting in a projected retention rate of 97% for 2020.
The addition of new business, resulting in for example, organic prescription growth, which we project will be between 25 and 35 million in 2020.
You know commercial employer business, we continue to drive organic customer growth for the 10th consecutive year best amongst our peers.
This includes capitalizing on the meaningful headroom for growth in other select in middle market segments, which comprised approximately 65% of the addressable U.S. commercial employer market.
We need to increase our focus on delivering innovative commercial solutions that address whole person health needs for employers in the United States and abroad.
Medical pharmacy, and behavioral solutions that we deliver and a fully integrated way.
We were also very well positioned for accelerated growth in our U.S. government business. We're excited with the outstanding value proposition, we have in Medicare advantage today, and how we're positioned going into 2020.
Including excellent stars ratings with 77% about customers in four star plus plans next year and that will increase to 85% in 2021.
Leading MPS measures, averaging approximately 70 across all of our markets.
And our ability to leverage aligned value based physician arrangements to provide a well coordinated care experience for customers.
Together, all this fuels, our geographic and product expansion plans for 2020 and gives us confidence we will deliver Medicare advantage customer growth of at least 10% in 2020.
Now relative to a combination with express scripts, we continue to make very good progress here.
In 2019. This includes the effective integration of our medical clients into our Accredo specialty pharmacy capability, which is largely complete and will be finalized by the end of 2019.
And the addition of express scripts high performing home delivery pharmacy towards Cigna network.
We've also made safeguardrx rational med and health connect threesixty capabilities available to our medical customers further positioning us to increase choice and access reduce costs.
I hope the further avoid gaps in care.
And ensure customers get the clinical support they need when and how they want it.
As we previously discussed we also launched several new innovative capabilities available to a commercial and health plan clients.
These include our patient assurance program.
More coordinated capabilities enabled us to reengineer the supply chain, giving our customers access to insulin for a flat 25 dollar co pay per month.
And our Imbark benefit protection program, which brings together the best of our combined capabilities to build a pathway to better affordable care for potentially life changing gene therapies.
As we brought together our businesses we've continued to deliver strong results accelerated by the synergies over combination reflecting this performance. We've now increased our revenue and earnings outlook for the third consecutive quarter. This year.
Now turning our attention briefly to our initial outlook for 2020, we expect attractive EPS growth next year and remain on track to deliver on our 2021 EPS goal of 20 to $21 per share.
Our 2019 outlook represents 18% to 20% EPS growth with the midpoint of $16, a 90 cents per share.
As we step into 2020 I called out a few headwinds from non recurring items.
Including first the absence of part of your reserve development.
Second the absence of a tax matter that we favorably settled into second quarter 2019, and finally, the return of the health insurance tax.
These three items represented 50 cents headwind as we step into 2020, giving us an adjusted jump off point of $16.40 at the midpoint.
For 2020, we expect to grow earnings per share, 10% to 13% over this amount.
Inline with our long term EPS growth expectation.
This growth will be driven by sustained organic growth across are well positioned growth platforms.
Favorable impacts of de leveraging and further administrative expense energies.
All in we are positioned for sustained attractive earnings growth for 2020, I remain on track to achieve our strategic goal of 20 to $21 Vps in 2021.
In addition, our strong operating momentum and capital light framework will continue to drive attractive cash flow and enhance our strategic and financial flexibility over the intermediate and long term.
Not a wrap up Cigna delivered strong third quarter financial results with continued momentum across our businesses, including earnings growth for health services and integrate it medical business.
Strong retention and expansion of customer relationships and significant ongoing operating cash flow generation in capital deployment.
Collectively our third quarter results give us confidence, we will achieve or increased 2019 revenue and earnings outlook, representing an 18% to 20% EPS growth rate over cigna's strong 2018 performance.
Our integration of express scripts is tracking well and we're delivering a number of meaningful benefits for customers patience clients and shareholders.
For 2021, we remain on track to deliver 20 to $21 Vps and cash flow from operations of at least eight and a half a billion dollars.
We remain committed to delivering 10% to 13% average annual EPS growth over the long term and with that I'll turn the call over to Eric.
Thanks, David Good morning, everyone. In my remarks today, I will review key aspects of Cigna's third quarter results and discuss our updated outlook for the full year.
Consolidated financial highlights for third quarter 2019 include adjusted revenues of $35.8 billion earnings of $1.7 billion after tax and earnings per share a $4.54, reflecting continued strong execution across each of our businesses with particular strength and momentum in both helps.
Services and integrated medical.
Third quarter results also included strong cash flow from operations driven by continued strong execution across our businesses.
Regarding our segments I'll first comment on health services.
Third quarter adjusted revenues were $25 billion and pre tax earnings were $1.4 billion.
Results for third quarter reflect organic growth with the addition of 492000 pharmacy customers in the quarter and 2.4 million customers on a year to date basis.
Strong volumes were 312 million adjusted pharmacy scripts fulfilled in the quarter.
Continued growth and specialty pharmacy, and effective execution of supply chain initiatives.
Overall health services performed very well in the third quarter.
As expected health services earnings in the quarter grew relative to express scripts third quarter 2018 earnings on a comparable basis.
As you heard from David the fundamentals of this business are strong we're delivering innovative solutions like imbark and the patient assurance program for the benefit of customers and clients and we continue to hit our key milestones as we progress with our integration priorities.
Turning to our integrated medical segment third quarter revenues grew 12% to $9 billion driven by customer growth premium growth, reflecting underlying cost trends and the inclusion of the express scripts Medicare part D business.
We ended the third quarter with 17.1 million global medical customers and organic increase of 212000 lives over third quarter 2018 led by growth in our select and middle market segments, partially offset by lower national accounts enrollment.
Third quarter earnings grew to $953 million, reflecting strong medical and specialty contributions and continued effective medical cost management, all while continuing to invest to drive future growth.
Turning to our medical care ratio or MCR, our third quarter MCR of 80.5% reflects strong underlying fundamentals, including continued effective medical cost performance.
Compared with third quarter, 2018, or MCR increased as expected due to the pricing effect of the suspension of the health insurance tax.
The higher MCR in our individual business and the effect on medical costs of one additional weekday and the third quarter.
Third quarter 2019 integrated medical earnings benefited from $8 million pretax of favorable net prior year reserve development compared to $18 million in the third quarter of 2018.
Overall sitting with integrated medical segment delivered strong results in the third quarter.
Turning to our international markets business revenues grew to $1.4 billion, representing 9% growth over third quarter 2018 on a currency adjusted basis.
Third quarter earnings were $194 million, reflecting continued business growth and operational efficiencies, partially offset by unfavorable foreign currency impacts.
So our group disability and other operation segment third quarter revenues were $1.3 billion.
Third quarter earnings for this segment were $143 million driven by solid performance in both disability and life.
For corporate segment, the third quarter 2018 loss was $442 million, primarily driven by $409 million that interest costs.
Overall cigna's third quarter results reflect continued strong revenue and earnings growth led by our health services and integrate the medical businesses.
I'll now discuss our updated outlook for 2019.
For full year 2019, we now expect consolidated adjusted revenues of approximately $138 billion.
This represents an increase to our prior outlook of one of the half a billion dollars at the midpoint, reflecting higher contributions from our health services business.
We now expect full year consolidated adjusted income from operations to be in the range of 6.38 billion to $6.46 billion or $16, an 80 cents to $17 per share.
This represents an increase of 10 cents to 20 cents per share over our prior expectations and represents growth in the range of 18% to 20% over 2018.
For 2019, we now project a consolidated adjusted tax rate of approximately 23%.
I'll now discuss our out to our 2019 outlook for the health services and integrated medical segment.
Our health services business, we now expect full year pretax earnings in the range of 5.075 billion to $5.175 billion.
Consistent with this outlook, we expect the continued ramp and sequential earnings for this business driven by normal seasonality as well as previously communicated factors, including the run rate impact of supply chain initiatives completed in the first half of 2019.
Continued strong performance in specialty pharmacy.
And the realization of administrative expense synergies associated with the Cigna Express scripts combination.
For 2019, we now expect adjusted Pharmacy script of approximately 1.22 billion scripts, which is the midpoint of our previously communicated range.
Additionally for health services, we now project 2020 retention rate of 97%.
In straight into that are innovative pharmacy solutions continue to resonate in the marketplace and enable us to deliver greater value for those we serve.
This strong retention fueled our expectation for organic script growth of 25 million to 35 million adjusted pharmacy scripts in 2020.
For our integrated medical business, we now expect full year earnings in the range of 3.8 billion the $3.85 billion.
This outlook reflects strength and growth in our businesses driven by deepening customer relationships industry, leading medical cost trend performance and well managed administrative expenses.
He assumptions reflected in our integrated medical earnings outlook for 2019 include the following.
Regarding global medical customers, we continue to expects 2019 growth of approximately 200000 customers.
Our guidance reflects continued growth in select and middle market, partially offset by a decline in national accounts.
Turning to medical costs for our U.S. commercial employer book of business. We continue to expect full year 2019 medical cost trend to be in the range of 3.5% to 4.5%.
We now expect the 2019 medical care ratio to be in the range of 80.8% to 81.2% narrowing of the range from our prior expectations, reflecting ongoing disciplined medical cost management.
All in we continue to see strong outcomes from our clinical consumer and physician engagement model.
We also continue to expect solid contributions from our international markets group disability and other businesses as we continue to innovate in the marketplace and deliver differentiated value for our customers.
All in for 2019, we now expect consolidated adjusted income from operations of 6.38 billion to $6.46 billion or $16, an 80 cents to $17 per share. This represents 18% to 20% growth over 2018.
I'd also remind you that our outlook continues to exclude the impact of future share repurchases and any additional prior year reserve development.
Our updated outlook reflects the strong performance, we're delivering in 2019, and we remain confident in our ability to achieve our 2021 earnings per share target of 20 to $21 per share.
Now moving to our 2019 capital management position and outlook.
As previously communicated we have a near term focus on accelerated debt repayment and have deployed $3.7 billion through the end of third quarter to repay debt.
We remain on track to return our debt to capitalization ratio to be upper thirtys by the end of 2020.
Our long term capital priorities remain as follows first reinvesting back into our businesses for innovation and growth.
Second strategic M&A on a target the basis and third returning capital to shareholders primarily through share repurchase.
Consistent with these priorities in the third quarter, we deployed $450 million to repay debt.
And we repurchased 4.2 million shares of stock for $676 million.
Additionally, in October we repurchased approximately 1.5 million shares for $236 million.
Our debt to capitalization ratio was 46.4% as of September Thirtyth 2019 down from 50.9% as of December 30, Onest 2018.
For 2019, we now project to cash flow from operations, a greater than $8 billion.
And this year, we continue to expect to deploy approximately $4.2 billion the debt repayment.
We now expect to have capacity for $2 billion of share repurchases in 2019, an increase of $500 million from our previously stated capacity.
Through the end of October we had already deployed $1.8 billion about total.
Our balance sheet in cash flow from operations outlook remains strong as our capital efficient businesses continued to deliver attractive margins and returns on capital.
We're well positioned to achieve the attractive financial targets. We've established for 2009 team and we maintained strong visibility toward our 2021 targets of 20 to $21 of earnings per share and greater than eight and a half billion dollars in cash flow from operations.
Using a speakerphone please pick up your handset before pressing a button.
Thanks, Good morning here with that Mr merger as well so we're coming up on one year Post express it seems like you guys have a pretty good handle on the operations things are going according to plan, maybe a little bit better debt to cap coming down yet so where do you.
As you think about your overall portfolio of assets and I'm thinking specifically around some of the global shop businesses.
Can you remind us the sort of the long term growth profile of those businesses and maybe juxtapose that with the U.S. medical in P.B.M. segment, now and kind of the synergies amongst I'm just trying to understand the importance to cigna overall in terms of having that broad portfolio versus being a little bit more targeted now.
Josh It's Eric I'm, just to start we provided some growth rates and expectations back at our Investor Day earlier this year the international businesses overall, we'd expect to grow in the 8% to 10% topline a little bit better than that bottom line on a sustained basis, so 9% to 11% earnings across that portfolio. So we think it's a really attract.
They've set of capabilities and their markets, where we're well positioned to operate and good connectivity between the international businesses back to a our U.S. businesses opposite to an important part of the portfolio overall I'm in total we continue to see good visibility to driving an enterprise growth rate of 6% to 8% both at the topline.
Bottom line to the international markets business is actually a faster growing part of the portfolio and an important one for us to build on David maybe you can add some other comments Josh I appreciate the wafer into question as it relates to the second part of your question. The the synergies a couple of things I'd ask you to think about one is as you know the vast majority of employer clients we saw.
Sure our multinational even the smallest of employers tend to have a multi national footprint within the globally mobile population as we think about it a significant portion of their individual care still takes place in the United States, whether its returning to the United States for care or needing gum, hi, advance care, where people travel to the United States.
And then within that a significant portion of the overall care equation ties not only to medical care about pharmaceutical care. So we see that leverage piece of the equation Secondly, I'm overtime, we continue to see demand outside the United States with our employer clients poor of all pharmacy solutions I'm. The same dialogue exists around whole person specifically around stressing the price.
I Shouldnt and coordinated care programs and then lastly, I'm when you think about the global supplemental benefit business, while it might be surprising some of the informatics, we've innovated in the United States around AI predictive indicators predictive modeling some of the seeds of that originated from outside the United States, where we used the logic into capabilities, but.
For our sales process, we took some of that framework into the United States to leverage in the individual business. So we still continue to see both the attractive growth is Eric articulated and synergies whether it's the multinational needs the care delivery or a lot of the informatics and insights going forward.
Josh I would use that word they're an important part of our portfolio. There are growing part of our portfolio.
Thank you Mr. masking. Our next question comes from Gary Taylor with JP Morgan you May ask your question.
Hi, good morning.
One to ask about the PBM segment.
And was pleased to see the you know the improvement both sequentially and year over year that you could you had talked about an expected. My question was throughout the year. There's been a number of adjustments to look at reported growth versus comparable growth, but by our estimates those.
Roughly sort of wash out this quarter I just wanted to see if that was rights on on a reported EBITDA basis up a little over 4% with the comparable sort of apples to apples growth be equivalent to that.
Gary It's Eric.
As you recall, we provided a role for the full year of health services earnings back at our Investor Day, a meal and kind of on that basis. It was the way I'd have you think about it would be for the first half of 2019 earnings were down into the mid single digits on a comparable basis for the first half 2018. That's after you make all of the adjustments for re segmentation and.
The like.
For the back half of 2019, we expect the earnings to be up in the mid to high single digits on a comparable basis, but so we could pull those pieces together and that gets to the result that weve consistently guided to for this segment. The overall over the course of the year with which we tightened that this earnings release to 5.75 to 5.175.
In dollars.
Okay fair enough, so mid single digit or better I think would be applicable for this quarter as well sounds like looks like.
Yeah, I think that's a fair statement Gary.
<unk>.
Thank you Mr. Taylor. Our next question comes from Scott, Hi, down with Stephen See me ask your question.
Thanks, Good morning.
Questions just on the the PBM regulatory Friday in Washington, and seems like a lot of the momentum as faded a bit since H S. Punch. It on a the rebate proposal. So just interested if you can talk about at this point, how you see that the PBM legislative and regulatory environment.
Playing out and whether you do expect that there will be any major changes to any of the key PBM market structures in the near term.
Bring it back to the main point, which is affordability the market is seeking better value and a big part a better value is more affordability, we expect to continue to see an evolving regulatory environment, but equally or more important a more accelerate evolving innovation environment and that's what we're driving toward so we're pleased to continue to deliver an outstanding farm.
And she trend clinical results et cetera, we're driving innovation that Orient the run affordability like the patient assurance program that I represented where are we kind of lift the financial burden and create predictability for insulin dependent diabetics at $25 for 30 day supply and then new innovations like embark to step into the high cost gene therapy.
Piece and the like so I'd bring the conversation back to affordability and it's something that we continue to drive and use innovation toward and will continue to engage constructively with a regulatory bodies around how innovation can drive better value from the societal standpoint.
Yes.
Easy comps going into 2020 meeting you only got about a half year.
Benefit from those typical negotiations and I think you've said previously you're going back to a one one convention there. So theoretically you should get normal growth in 2020 on the PBM.
Plus our the Annualization of what you did in the back half of this year.
Got a reasonable way to think about it such that second that 2020 growth.
It's kind of above typical.
Because of that thanks.
Justin Good morning.
Appreciate the question lot of moving parts and the picture, let me start qualitatively and see if Eric Eric Once had additionally to the 0.1st Big picture of Misery noted we're quite pleased with the result, we're delivering in 2020 inline with our expectations I'm, an important inflection point for the third quarter as expected.
The pattern will more normalize as you articulate it 'cause your reference is correct our supply chain activities were more front end loaded from actions and therefore, a backend loaded this year from contributions next year that will smoothed out I'd ask you to consider a few additional items as well as we move forward through the business cycle our synergies.
We'll continue to ramp.
As we move forward through our business cycle as well the stranded overhead will ramp down where our objective is to have all the stranded overhead removed by the end of 2020, resulting in zero stranded overhead as we step into 2021. So I'd ask you think about those moving parts the big picture comparator, you're you're using I think is.
Right, but you need to add those additional moving parts of ramping synergies and then ultimately removing all the trend over by the end of 2020.
The 2020 guidance here and.
You know David to understand I. Appreciate the comments you made it does D. Does your initially views outlook here and just to clarify include benefit of or expect to share repurchase next year. Obviously, you didn't doing about 2 billion this year or any kind of sense for how much we should expect or you're kind of thinking about in your head in turn.
As a buybacks for next year.
Good morning appreciate the question.
The first as we get through the end of the fiscal year and stepped through the fourth quarter call. We'll look forward to providing additional color relative to 2020, but we're excited with the strength of this year and the ability of 'em such a strong outlook for next year specific to your question consistently we do not factor in two items to our forward looking.
20, and then 21 second lead to remind you. We also do not project prior year Reserve development as part of our outlets from that standpoint. So your logic is correct. Those two items would be excluded from anything we articulate on a forward looking basis, and we true that up quarter over quarter, Eric maybe a little color on the cash flow and the capital deployment. The child, It's Eric we provided some of that.
<unk> back at our Investor day in terms of the cash flow from operations. We expected in 2019 2020 in 2021, I'd say, our we've increased our view on 2019 as I noted in my prepared remarks, 2020 view remains generally consistent on we'd expect to Ah the generate about $7 billion of cash from from operations the bulk of.
That will go to deleveraging because I noted again in my prepared remarks, that's our top capital deployment priority will have some capacity for repurchase and it will provide more color on that as we get a into the year.
Great. Thank you.
Thank you Mr. me. Your next question comes from AJ Rice Credit Smith, you May ask your question.
Hi, everybody have thought I wouldn't maybe ask about a the government business would you obviously highlighted again is that one of the priorities.
You probably got a sense at this point to be able to look at the Oh open enrollment and where things are enough and the relative competitive positioning of a different offerings I know it at Investor Day, you said, a long term you thought it may would grow 10% to 15% and drove the low end next year any updated thoughts on.
Hey, good morning, it's David your recollection from our idea is correct or intermediate to long term outlook is 10% to 15% customer growth for that business portfolio. When it I'd say, we noted as the transition you're going 2020, we expected it to be at the lower end of that range as I noted in my prepared remarks, we expect.
These 10% growth to the core of your first part of your question. We're quite pleased in terms of the positioning of our offerings in our key markets, both I call core offerings, meaning individually to mobile offerings as well as a new offerings or individual PPL offerings as it relates to the benefit design then the overall on price point positioning secondly, a mark.
Feedback has been quite positive and third while early early volume indicators are positive and tracking well from that standpoint.
Our business portfolio and then our physician relationships that are value based specific to Medicaid as you know from prior conversations we've historically had a lower level priority on that versus other growth platforms.
We continue to believe that over time as states grapple with both the clinical burden and health challenges as well as affordability challenges a Medicaid programs will continue to evolve or state sponsored programs will continue to evolve and be sub segment that in terms of either value based or risk based hi comprehensive program.
Thank you Mr. Rice. So next question comes from Steven Valiquette with Barclays. You May ask your question.
Great. Thanks, good morning.
So I'm just curious if your strength and specialty pharmacy was driven simply by greater prescription volume and or the introduction of any particular, new specialty drugs.
What was your profit strength also maybe partially enhance.
Steve Good morning, It's David let me start and I ask Eric to add a first we're quite pleased I think the headline is we're quite pleased with the both the positioning the ongoing innovation the strength of or Accredo asset and just stepping back putting it into into context.
That that business as a trusted pharmacy business as specialty care providers specialty pharmaceutical manufacturers look to an organization that has the experience of coordinating the complex care and services that are necessary the clinical programs up to an including 600 home health care professionals that.
Is that our patients and help to coordinate the carrying services and lastly, as you may recall from prior conversations.
That organization is broken down into in excess of 15 sub specialty organizations given the uniqueness. So lets there the growth profile is generated from obviously additional script volume for our we'll call. It more captive business, but also just organic growth that exists outside of our captive business, whether its E.S. high captive are shaking the cap.
It could there was growth in terms of the business dynamics, David just described as well as or rule and helping to manage our customers and clients cost them and we get rewarded for the effective job that we do there as well I'm, specifically I'm there have been a different a drug launches both in terms of new therapies that have come into the year. This year that drive that and it's just.
Increasing use of therapies that the that would that we provide through accredo and the like so that's been a a bit of the driver and then on top of that as new alternatives like generics for some of the specialty therapies or a or Biosimilar has come on line there'll be more opportunity for the accredo capabilities in the future as well.
Okay I appreciate the color. Thanks.
Thank you Mr. <unk>. Our next question comes from Whit Mayo with you, but yes, you may ask your question.
Hey, Thanks Express had a enterprise wide efficiency program that was underway I don't know maybe two years ago I think they size. Some some pretty large numbers is they thought about that program I think I have 600 million.
No. It's maybe I'm wrong, but is there any update to that program. You know what you guys have have learned or is this all sort of merged together into how sick nothing city enterprise level locked up the corporate synergies with express thanks.
Hi, whether it's Eric that express scripts announced an initiative to go back in 2017 aimed at reducing costs and improving the efficiency in light of the transitioning clients in like that in initiative continues on its managed along with our integration and US working to drive the organization broadly to a to improved levels of of affair.
To this and efficiency its been managed in conjunction with our ongoing a integration work and sets are gonna does continue largely on track in terms of via the major milestones that that express scripts had outlined to make sure that the costs to support the ongoing business were consistent with expectations and that I really competitive level.
Okay. So just to be just to be clear that that is a totally separate program. Then how you you frame.
The GE and a related synergies from the transaction.
Good to extreme of us and I could have a separation, but we do think of easy I as separate from the synergies that are deal related and so both of those are working to drive costs out of the a the organization and get us to Ah I really a competitive effective and efficient operation.
Thank you Mr. email and next question comes from Ralph Jacoby City, you May ask your question.
Thanks. Good morning, just quickly on go back to the guidance commentary on the or using the 16 40 odd jump off point, Tom and midpoint of 10% to 13% growth would put us in sort of the 18 $30 range.
This is that a general fret framework, our fair framework I know you want to put a spot estimate on it.
And before any share repo. So just want to clarify those things and then you. Obviously you you delivered upside to the baseline from when you first put out the 20 to 21 dollar EPS goal for 2021, you noted that range still holds but is it fair to expect any bias to the upside or to the higher end at this point or you just saw there Nick Dot com.
Thanks, Good morning, it's David to the first part of your question Big Picture you have a right.
The 16 40, we remain committed to the 10% to 13% and your math I'm kinda squares square that ranged from that standpoint and per your comments I'm excludes prior year reserve development, as we always would and or capital deployment to the second part of your question I appreciate your optimism.
Come back first and foremost we're delighted in such a dynamic environment to put that goal and objective out which is a I'm a significant compound. It S. Over a long period of time think of jumping out of 17 after tax reform from an 18 forward of Oh, you know 15 mid teens.
Cagar over a multiyear period of time, we're delighted with that I expect.
Appreciate your notion relative to the range, we'll look forward to further updates as we go forward and it's Eric and I. Both noted the visibility we have in the commitment we have to deliver on that 20 to $21 and the at least eight and a half a billion dollars of cash flow from operations. We're delighted with at this point in time.
Okay fair enough. Thank you very much.
Thank you Mr. Jacoby. Your next question comes from Kevin Fischbeck with Bank of America, You May ask your question.
And just getting cost kind of winding down back it out as you know a per center to there's the synergies kind of ramping up which.
Good added <unk> percent or too and so capital deployment kind of seems like a normal year as far as the full year benefit of what you've done in the year before so is there a reason to think that the core growth and 2020 might be a little bit lower than average for some reason I guess just trying to figure out why it's only 10 to 13 with.
Trying to cost synergies ramping.
Kevin David Hum pick up on your last radiology, only 13, but but I appreciate the tone of your question in the framing. So let me step back if you think about our commitment to our shareholders and we walk through comprehensively at I. day, the framework that tend to 13% essentially orients around six to eight from the.
If you think about that implied guidance direction that we provided we're providing the same direction, which means that there's an underlying organic performance of six to eight.
Within our expectations in the four to five from capital deployment, given that we've chosen to declare a capital to effectuate. The transformative transaction that four to five contribution largely comes through the effect of capturing synergies step up next year and the effects of de leveraging there's some rounding relative to the.
The share repurchase from that standpoint, it's the initial range in direction, we're providing and we'll look forward to providing additional context as we stepped through the fourth quarter call. So I think your logic stream is right by attaching the capital deployment, but again ask you to think about that for 2018 as being driven by the effects of the de leveraging.
And the effects of the synergy capture which are a direct result of prior capital deployment net were in line with our long term sustained results and why before your track record of delivering that level or greater from that standpoint.
Okay, great. Thanks.
Thank you Wendy Thank you Mr. Fishback. Our next question comes from Ricky Goldwasser with Morgan Stanley You May ask your question [noise].
Hi, Good morning, I'm, just going back to accommodate when made earlier on to call. I think you mentioned <unk> stuff for the fourth quarter is gonna be the last one to children are transitioning kind [laughter] HM we rounded impression it did last ways off affording is going to happen in January so are you see the business transitioning faster.
And that side, maybe if you could give us an update on your expected cadence off seeking a script.
In sourcing back into express.
Hi, Ricky it's Eric So it's on the transitioning clients under your transition out we would expect that to wrap up at the end of the year at this point until the for your the heard me correctly with the fourth quarter would be the last period that we would expect to report that as a as a separate item items to so we would expect the transition out to be wrapped up at the end of the year here you guys.
It relates to the transition in and moving to the express platform I'm really no update here in terms of the specifics much earlier. This year, we announced that we had an optimum reached an agreement on the transition agreement associated with the services that they were fulfilling for the the Cigna pharmacy that transition began.
In July David noted in his prepared remarks are underway now we would expect that the full annualized benefit of of that being on the express platform I'm would that would come through by the end to 2020, but we haven't haven't broken out any further detail in terms of the specific cadence there.
Okay any skin I, if I could have one quick follow up just on T. MCR arrange for the fourth quarter tended to ranges quite right about 160 bips between low to high when we think what do you see is kind of thinking that the swing factor there.
I'm all items that could drive a variability up or down in the out in the quarter.
Thank you.
Is that sort of specifically in the numbers you shared this morning, and then wanted to also just confirm the step up in synergies.
Is that still kind of.
Consistent with the initial outlook I think you guys laid out like 273 million dollar pre tax step up back in.
May have 18, it says that being contemplated as well fully.
Steve It's Eric I'm, just since a couple of different dynamics. There. So first of all just to be clear the figures David talked about for 2020 excludes any future share repurchase, but but the includes the other operations that we would expect in terms of the effect of what we've done this year the rate and pace of our de leveraging et cetera, but it excludes any future.
Purchase or the other acquisitions or things along those lines.
I'm not pace.
Since together, that's a that's that dynamic in terms of the up the second part of your question.
On the synergy components I'm broadly we're on track for this energy path that we've talked about the $600 million that we've outlined over the course. The first four years continue to execute against that and continue to to see those as a as a reasonable markers in terms of the gold that will achieve the rate and pace of investments in such will all.
It is a very as we manage the business, but again, a macro level, Steve would be on track for that.
Okay. Thanks.
Thank you Mr. Snow. Your next question comes in land Smokes with Sanford Bernstein, you May ask your question.
What do you what do you kind of presuming as far as a member growth within the commercial segmented importantly, as you're looking at select you see 2020 as being another year real have a lot of risk group, where do you see 2020, maybe reverting more towards self insured growth. Thanks.
Lance it's David Good morning, so within the integrated medical business is I noted my prepared remarks, 2019 was our 10th consecutive year of organic growth. The growth is you articulate.
Reference one of the one of the driving force is there sustain attractive growth into select segment.
We continue to see sustained attractive growth.
In the Middle market segment, Oh Pro ball portfolio stepping in 2020, we'd expect that to continue the mix of funding mechanisms as you know, but just to remind Monday audience. We continue to offer a diverse portfolio funding options to our clients and we see variability any.
Given point in time in terms of do clients up for more guaranteed cost I'm more shared funding or should returns or more air. So Oreo so stop loss and we see that flex over time 2019, we saw a bit more of the guarantee cost phenomenon play through and we're very comfortable with that also to remind you that.
Our overall earnings profile per customer is similar between guaranteed cost and self funded because of the nature of our portfolio of businesses from that standpoint, so stay tuned for more for it to 2020 I think the headline is continued growth continued strength in the so like segment continued strength in the middle market segment.
Great. Thanks.
Thank you Mr. well. Our next question comes from David Windley with Jefferies. She me ask your question.
Hi, there, it's Dave Styblo on on for when Lane and next question.
Just to stick on the enrollment I think for the rest are you guys are looking to add on about another another 90000 lives in the fourth quarter to reach or target curious how much visibility do you have on that how much of that is already in hand, and then thinking about this year I know, it's a little bit lower than what you. Originally expected I think that was largely due to fewer.
Our fees are often the market. It wasn't a retention issues I'm curious is that more of a delay and push out of those RFP is coming to market and we might see more that activity next year.
Hey, Dave It's Eric I'll start as it relates to the growth over the balance of the or couple of things I would note first well up over 200000 customers now versus where we were at the end of third quarter 2018, so to accomplish our full year goal. We just need to keep the same pace is what we delivered in 2018 as you might know into select segment and the the.
Lower under the middle markets like with that's really a year round selling cycle I'm and so we would expect a opportunity to drive to a two and through our goal over the course of the fourth quarter here just by executing in the same way that we have over the last number here. So think about that as having good visibility in terms of the the trajectory and thoughts there.
David After you want to provide some additional commentary more broadly on the selling season that to your thought process first you're correct retention remains strong across the portfolio for 2019, we saw a little lower performance within our.
National commercial employer segment I'm thinking about those is commercial employers are 5000 or more employees that are multi state and a little lower performance at the higher end of the middle market range. So they are the largest within the middle market in aggregate still continue to grow also remind you that as we get to those largest clients they tend to be the less pending.
Traded or a lower level, especially penetration in terms of the profile as that you see even though the medical customer growth came down a tad. This year earnings trends remains from that standpoint, and then we should expect that same trend to continue into 2020 'em. We expect 2020 to be another strong retention year strong growth in the so like segment in the K.
For the middle market with I'm very performance at the highest and where there's thinner penetration.
Thanks.
Thank you Mr. Wenli. Your next question comes to Matt Borsch with BMO capital markets you May ask your question.
Hi, Hi, maybe could you just talked about the commercial market in terms of what you see employers interested in terms of product changes for 2020 at this stage I eat correct me, if I'm wrong, there seem to be a little bit of a slowdown in the pace of cost shifting.
Well, if you want to put it differently adoption of high deductible health plan products is that something that you seen are continuing to see in and if so what our employers doing instead.
Matthew Good morning, it's David at the broader sense consistent with prior continent employers are seeking to fundamental needs improved affordability to create the balancing sustainability the programs that generates improved health and productivity president he isn't it.
Gauge what are the coworker, so they're working with all the levers to drive that to a statement you made and I'll take a little bit more broadly from CDH pay it depends on where the employer is in their cost sharing arrangement, but for some employers they've concluded that they pushed I would say to the outer limits at the cost sharing and some employers are actually.
Stepping back from that a little changing their contribution strategies by wage level to try to get the the alignment with employees as <unk> as a percent of the discretionary income as opposed to a flat percentage third I would suggest that employers are much more actively engaged in programs around what we call her.
Ill person health I'm, putting the MINDBODY together, taking depression stress management behavioral services and driving them more integrated then because the data would show that there's a high corollary to not only medical issues, but productivity president. He is I mean overall sustainability from that standpoint.
And then open to more innovation relative to care delivery mechanism. So the interest in virtual care delivery to get more personalization efficiency and affordability as well as extending the care equation, whether to the employer the home or otherwise those trends continue. So your theme is on absolutely, but it varies.
He's by employer and it varies by lever, they're seeking to push and our portfolio of assets lined up very well to that need sat.
Great. Thank you for all that.
Thank you Mr. Bush. Your next question comes from George Hill with Deutsche Bank, You May ask your question.
Good morning, guys. I appreciate you taking the question as come back on the pharmacies I'd brand drug pricing has been pretty strong 2019, I guess can you talk about the company's expectations for 2020.
As it relates to drug pricing and maybe if you could provide a little color around if it comes in you know kind of very low single digits is there an impact on like rebates and profitability in PBM. Thank you.
George Good morning, it's David.
First and foremost broadly speaking we continue to be very pleased with the pharmacy trend or the overall result, we're delivering for our clients and customers and continue to build off of strength there both in the core pharmacy operations as well as they are very important specialty pharmacy operations.
At this point, we're not providing detailed guidance as it relates to underlying pricing trend or brand trend or otherwise from that standpoint, well challenge ourselves to provide additional visibility as we get into the fourth quarter call in more detail outlook from that standpoint, but I think the most important part of the the answer is that work comp.
We're gonna grow our health services portfolio revenue scripts and earnings next year I'm, we feel we're very positive about our ability to deliver differentiated trend clinical performance in service results next year and manage the dynamics of the inflationary environment and the mix of inflationary environment between generic branded specialty pharmacy to.
Holes and we'll look forward to trying to provide more guidance as we step in 2020.
Okay. Thank you.
Thank you Mr. Hell I final question comes from Frank Morgan with RBC Capital markets you May ask your question.
Good morning, most of my questions have been answered. So these will be very random just the first when.
Any color on the upcoming.
Post trial brief hearing on the breakup fee I think I sat for sometime in November maybe the date there at any expectation is there.
Any commentary around the Texas Medicaid.
The results that came out yesterday and.
I think it was you're about to random questions. Thanks.
I'll take random it's David I'll take random question, one on litigation in Alaska.
Eric to take a random question number two on Medicaid specifically your dates are correct. The the final trial is stated slated for a later in the month of November or we continue to feel very strongly about our case and look forward to a successful resolution from that outcome and to remind you we have no.
Being factored into our capital outlook relative to our recovery of that break fee, Eric I'll ask you to address Medicaid, It's Eric on Texas, Medicaid just a couple of things they put out there for you first of all I'm you're correct. We've received notice earlier this week that I'm, all or a oh well no contract will wind down next year.
Just to put it in context, it represents about $900 million of of revenue, but really a de minimis contribution to earnings the timeframe in 2020 means they'll have order of magnitude maybe a 300 million dollar earnings decline year on year and less than a penny I'm a bit I'm sorry.
In a million dollar revenue decline I'm in the air and like less than a penny of earnings per share. So so very immaterial I, we're reviewing our options related to the the potential the protests than ever made a decision on that at this point, but big on very manageable in the I'm in the scheme of things overall.
Thank you.
Thank you Mr. Morgan at this time much in the call back up your David put any for closing remarks.
Thank you just to briefly wrap up or call I'd like to highlight some key points for today, we're very pleased with a third quarter results, which reflect continued the momentum across our businesses, including earnings growth for health services and integrated medical business and strong retention of the expansion of our customer relationships as well as significant ongoing operating cash flow generation in capital deployment.
Relative to a combination with express scripts, we continue to make very good progress and we are delivering a number of meaningful benefits for our customers patient clients and shareholders.
Looking ahead to our initial outlook for 2020, we expect attractive vps growth next year and expect to grow earnings per share, 10% to 13% inline with our long term EPS growth expectations and for 2021, we remain on track to deliver our 20 to $21 S goal as well as cash flow from operations that Lee.
Just eight Anat billion dollars, we thank you for joining our call today and look forward to our future discussions.
Ladies and gentlemen, this concludes cigna's third quarter 2019 results review seeking investor relations will be available to respond to <unk> question Sean.
Recording of this conference will be available for 10 business days following this call.
You may access to recorded conference by dialing eight zero find 180, 087, 0.40 to 998 euros or outside to no passcode is hired for the replay.
Thank you for participating we will now disconnect.